Spotlight On USPS

By Kellie Lunney

April 1, 2012

When a government agency or a business runs into serious financial trouble, it’s often a sign that somewhere along the way oversight fell short. The U.S. Postal Service, which lost $3.3 billion in the first quarter of fiscal 2012 alone and is arguably in the worst financial shape right now of any federal agency or major American company, is not wanting for watchdogs.

The quasi-governmental agency—which operates like a business without the benefit of appropriated funds—takes direction and advice from several bodies with different roles and often competing interests, including Congress, the Government Accountability Office, USPS inspector general, Postal Regulatory Commission and Board of Governors; USPS also must comply with the 2002 Sarbanes-Oxley Act. In addition, hundreds of other stakeholders and customers nationwide weigh in on everything from postal rates to post office closings. That’s a lot of oversight for an entity that doesn’t receive congressional appropriations.

So with all those watchful eyes, how did the Postal Service get to the brink of bankruptcy? Some of the fault lies with the popularity of email, the decline in the use of first-class mail, and the agency’s struggle to innovate in business and technology. There is the issue of flexibility. Postal Service officials, among others, argue that a lack of control over deciding everything from how to pay for employees’ benefits to the frequency of mail delivery is as much to blame as modern technology for its financial troubles.

The Postal Service has said—albeit diplomatically to avoid ruffling too many political feathers—at least one of its overseers is partly at fault for tying its hands. “Unfortunately, while we have a mandate to operate like a business, the reality is we do not have the flexibility under current law to function as a business,” Postmaster General Patrick Donahoe, said in a November 2011 speech at the National Press Club. Flexibility under current law, of course, depends on the dictates of Congress.

The 2006 Postal Accountability and Enhancement Act mandated wide-ranging agency reforms, including a controversial requirement that USPS prefund retiree health benefits at about $5 billion annually, making it the only federal agency with that obligation. “Consider this: During the worst of the downturn in mail volume—in 2008 and 2009—the operations of the Postal Service were profitable,” Donahoe said in the November speech. “Our $6.6 billion in losses were due to $7 billion of mandated retiree health benefits payments that no business would have made.”

The Obama administration favors giving the agency more leeway in restructuring how it prefunds such benefits. Pending bills in the House and the Senate contain a number of provisions that aim to give USPS more room to maneuver and would modify employees’ pay and benefits, but many lawmakers are loath to cede too much oversight.

House Oversight and Government Reform Committee Chairman Darrell Issa, R-Calif., wrote an op-ed in the Dec. 18 issue of The Press Enterprise, a Riverside, Calif., newspaper, arguing the Postal Service’s problems stem from its failure to adapt to a modern business model rather than congressional mandates. “The source of these troubles is not a requirement that the Postal Service fund the health care and pension benefits that its employees rightfully earn,” Issa wrote. “The problem is not even that email has taken away the Postal Service’s business. The main problem can be summed up in one word: procrastination.”

The House committee approved a postal reform bill in October 2011, which provides some flexibility but also retains strong oversight of the agency. For example, the legislation gives the Postal Service the option of eliminating Saturday delivery, would require postal workers to pay at least as much as other federal employees in health and life insurance premiums, and would keep pay in line with the private sector’s. The measure, however, also calls for a receivership-style authority to take over for USPS management when the Postal Service fails to pay its bills for more than 30 days.

The Postal Service has a somewhat different take on the situation. “While there are several provisions in the bill that we agree with, the bill appears to be based on the assumption that the Postal Service’s challenges result from too little regulation,” the agency said in a June 2011 statement, referring to the legislation the Oversight and Government Reform Committee approved last fall. “The opposite is true. Our financial instability is the result of dramatic loss in volumes, coupled with restrictions imposed by Congress that have prevented the Postal Service from adequately responding to those losses in a businesslike fashion.”

The agency, which is looking to shutter more than 200 postal facilities nationwide, plans to eliminate tens of thousands of jobs through a combination of layoffs, buyouts and early retirement packages. USPS estimates office closures and workforce downsizing will save billions of additional dollars, but politics has stymied the agency’s efforts so far, and likely will continue to do so.

In December, USPS announced it would delay closing or consolidating any post office or mail processing facility until May 2012, saying it made its decision “in response to a request made by multiple U.S. senators.” The elections this year will further disrupt closures, with Post Office officials putting some on hold in response to state concerns about disrupting the mail-in and absentee voting. The agency also favors another cost-saving initiative—eliminating Saturday mail delivery—that some lawmakers oppose.

Ruth Goldway, chairwoman of the Postal Regulatory Commission, doesn’t believe USPS suffers from too much oversight, but acknowledges the logistical challenges when stakeholders have differences of opinion. “We are sometimes frustrated when the Congress or the administration or the inspector general has a different position than we do, but the Postal Service is a creature of our government, so it’s bound to be more complicated,” Goldway says, citing the Postal Service’s large size in particular. The independent PRC, which USPS funds, has broad authority to review postal pricing, service performance, product development and related issues. While the Postal Service is required to report to the body, its recommendations are advisory. But they can carry a lot of weight.

Goldway gives a hypothetical example of how intricate the web of postal recommendations and oversight can be. “It is tricky,” she says, pointing out that it’s possible for USPS to receive congressional approval on five-day mail delivery, but then receive criticism from PRC on implementation of the initiative. “USPS is given some discretion to try things out, and then we review them,” she says.